NEW YORK: The Canadian dollar sagged to a two-month low on Wednesday as the Bank of Canada expressed caution about the timing of future rate increases, prompted by expected economic softness in the first half of the year.
Like the Australian dollar, the Canadian currency has been under pressure on bets that their central banks might consider easing interest rates to counter further slowing in their local economies, analysts said.
"The moves are about the dovishness of their central banks and deterioration in their domestic data," said Ben Randol, senior FX strategist at Bank of America Merrill Lynch in New York.
The BOC said earlier on Wednesday there was "increased uncertainty" around future rate hikes as it held interest rates steady as expected.
The Canadian dollar fell to C$1.3457 after the release of BOC's latest policy statement, which was its lowest against its US counterpart since Jan. 4. At 11:25 a.m. EST (1625 GMT), it was 0.69 percent weaker at C$1.3443.
The Aussie dollar was $0.7025, down 0.83 percent on the day after hitting $0.7021, a two-month low.
The greenback was generally firmer against most major currencies in advance of the Federal Reserve's release of its Beige Book at 2 p.m. EST (1900 GMT), which is a snapshot of regional US economic conditions.
While the Federal Reserve took a dovish turn of its own in late January, the dollar has been supported by the relative wide differentials between US bond yields and most developed economies, analysts said.
For example, benchmark 10-year Treasury yields were about 256 basis points higher than those on 10-year German Bunds .
Speculators have remained bullish on the greenback with ongoing uncertainties about Brexit and trade negotiations between China and the United States.
Meanwhile, currency market volatility has slumped in 2019 as a pause in central bank tightening and hopes for a resolution in the US-China trade conflict suppress price movements. Deutsche Bank's Currency Volatility Index is approaching record lows.
Viraj Patel, global macro strategist at investment advisory firm Arkera, said realized volatility in euro/dollar was at or near record lows with traders struggling to find direction.